Ride-Sharing Lyft Faces Off Against New York Attorney General

An effort by New York authorities to stop ride-sharing app Lyft from operating in the state is the latest eruption of tensions between local regulators and so-called “sharing economy” businesses.

Lawyers for the two-year-old, San Francisco-based Lyft are returning to Manhattan court on Monday afternoon to try to persuade a judge to allow it to carry forward with its plans in New York.

In a lawsuit filed Friday, the state’s attorney general and top insurance regulator accused Lyft of operating an unlicensed for-hire livery service and asked a judge to grant a temporary restraining order suspending the company’s operations in the state.

Lyft says it’s not a “for hire” car service company, arguing that it simply helps car owners to drive others needing rides in exchange for a “suggested donation.”

The state’s efforts against Lyft follows heightened scrutiny of other Silicon Valley “sharing” companies. Other upstarts like Uber Technologies Inc. and Airbnb have also confronted a battery of legal challenges as they seek to make inroads into highly regulated urban markets dominated by traditional players. The fights have spilled into other countries, with taxi drivers in European cities staging protests against Uber.

Lyft began operating in Buffalo and Rochester in April and had been planning to expand into Brooklyn and Queens on Friday when state regulators intervened.

The litigation took an unusual turn on Friday when company officials and aides to Attorney General Eric Schneiderman accused each other of lying about what happened in court that day.

The attorney general’s office and the state Department of Financial Services issued a press statement on Friday saying that a judge had granted an injunction against Lyft. The company insisted that no such order had been handed down by Justice Kathryn Freed.

Justice Freed told Law Blog on Friday evening that she agreed to give Lyft more time to present its arguments against a temporary restraining order on Monday on the condition that it put off its launch plans through the weekend. “I suppose you could argue it was a TRO,” Justice Freed said.

In a brief filed Monday, Lyft’s lawyers argued that the state has “employed a strategy—involving misrepresentations to the public and noncompliance with statutory requirements—designed to destroy Lyft’s business without due process.”

A spokesman for Scheiderman’s office, Matt Mittenthal, said Friday: ”Facts are facts. As a result of the judge’s order, Lyft is legally prevented from launching this evening in New York City.”

The state claims Lyft is operating illegally by using drivers that lack commercial insurance and aren’t licensed by New York City’s taxi commission. It also claims that Lyft is “acting as an insurance producer without a license by soliciting, negotiating, or selling an insurance policy to New York drivers.”

In court documents, Lyft disputed that it was violating insurance laws. Lyft “has never sought to promote or advertise for any insurer, and Lyft only shares details about its insurance in order to provide necessary information to its users and regulatory authorities,” the company said in its brief. “Furthermore, Lyft has never required any of its users to purchase insurance from a specific insurer.”

Lyft, though, appeared to be trying to avoid a collision with the city’s taxi industry, saying Friday that it would launch only after it gets a green light from the New York City Taxi and Limousine Commission.

In other U.S. cities, Lyft competes with car services such as Uber, which doesn’t operate its ride-sharing service in New York.

Uber, which has agreed to follow taxi-licensing rules in New York City, has said it would roll out its ride-sharing service in New York if regulators changed their stance, WSJ reported last week.

Pedestrians in New York City were allowed to hail yellow cabs with their smartphones after livery-car companies lost a court bid last year to shut down a city “e-hail” pilot program.

Last week, Uber struck an agreement with Schneiderman’s office, promising to comply with New York’s price gouging statute, which caps prices during emergencies.

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